It’s time for something new. We developed a new course called The Beneficiary’s Corner. This course will allow us to delve more deeply into a California Trust or Will topic. The first lesson of each course is The Facts, where we set out a hypothetical scenario drawn from our experience in actual cases. We then provide you with our professional opinion in The Law section. And finally, we have our partners conduct a roundhouse discussion of the topic in The Talk.
Below are the videos from our first course focusing on Trustee investing. Each month we plan to release a new course in the same format. You can find all of our courses here. You can also find an in-depth written text for this course here.
What we suggest to people is to be comfortable with the person you are meeting with before hiring a lawyer. Lawyers have a fairly bad reputation, but that reputation does not apply to all lawyers. You need to meet with several lawyers and make sure you are comfortable with the lawyer you select.
A few questions we recommend asking include: does the lawyer sound like they know what they are talking about? Do they have an interest in your case? If they are interested in your case, what are they interested in? Is it an interesting fact situation, legal situation, or something they feel compelled to address?
After asking a few questions, sit and see what your comfort level is with the person. If you are comfortable with the person and they sound like they know what they are talking about—and are interested in the case—then you probably found the right lawyer for you.
The most important thing is the relationship between the attorney and the client. There will always be ups and downs in every litigation case ad you need to be able to work together and trust each other in good times and in bad. If you feel comfortable in all this, then generally you have found the right attorney for you.
Occasionally we are asked about fighting against a big firm. Maybe your Trustee decides to hire a big firm in Los Angeles, New York, Chicago, Boston, or some other big city. How are you going to fight your Trustee when he or she is represented by a big law firm? That’s a fair question.
Many people think that large law firms have unlimited resources and can crush a small firm in litigation. But in Trust and Will litigation that tends to be false. First, large law firms tend to be far more expensive—meaning their client will feel the financial pressure of litigation before you do.
Second, large firms have a hard time doing anything “outside of the box” because of the many partners to which each lawyer must answer. That means if anyone does anything novel they may be questioned or challenged for it later by the higher-ups. As a result, most big firms engage in a traditional style of litigation, which is fairly predictable.
Third, the California Code of Civil Procedure applies to everyone in California—big firms and small firms alike. Yes, it takes work to enforce the rules, but after having done it many times against big firms, we can easily attest that the rules are applied against big firms just as well as small firms.
A specialist, boutique firm is smaller, more nimble, and can react appropriately and more strategically than most large law firms in Trust and Will litigation. As a result, a specialty firm can develop and employ a unique strategy that better fits your case.
There are times when a Trust settlor names a successor Trustee who is not a beneficiary of the Trust. This is often a great idea because naming a child as Trustee can be disastrous. And naming two or more children as Co-Trustees is a fantastic idea if you want to keep lawyers fully employed (and who doesn’t want that???).
The problem, however, is when the non-beneficiary Trustee is challenged by a Trust beneficiary. For instance, if a warring beneficiary is determined to exert control over the Trust, he or she may challenge the appointment of the successor Trustee when the time comes for that Trustee to act. What incentive does a third-party have to fight to be Trustee when there’s nothing in it for them?
Fighting to block a named successor Trustee from acting is not an easy thing to do depending on the Trust terms. Most Trust terms do not allow a beneficiary to remove and appoint a new Trustee. That means a Trustee has a right to act provided there are no “skeletons” in the Trustee’s closet. What type of skeletons would block the appointment of a Trustee?
Probate Code section 15642 provides the grounds for Trustee removal, which can be used at times to block a named successor Trustee from acting in the first instance. The grounds include things like insolvency of the Trustee, unfit to act (whatever “unfit” means), where the Trustee committed a breach of trust, where the person cannot resist fraud or undue influence, and the like.
The problem arises where a named successor Trustee has not yet taken control of the Trust assets, but is challenged by a beneficiary from acting. The named successor may not be able to access and use Trust funds to fight the beneficiary over appointment as Trustee. And a non-beneficiary Trustee has no financial stake in the outcome of his or her appointment. In other words, the named Trustee is put in the unusual position of paying out of her own pocket for the right to take on a thankless job with an unruly beneficiary to deal with.
So why would anyone take on such a fight? It comes down to principal. Sometimes standing up for what the Settlor wanted is more important than the personal sacrifices incurred in such a fight.
The better approach for all concerned is to have an easy way out—a safety valve that will allow someone to step in and cure the problem without excessive fighting. And that brings us to the unique, and rarely used, idea of a “special” Trustee or a Trust protector. For our discussion here, both terms can do the same function; namely exercise the power to remove and appoint Trustees.
If a beneficiary insists on fighting against a named successor, then give the power to remove and appoint to a neutral third-party (called a Trust protector or special Trustee) who can choose an alternate Trustee. This approach satisfies the beneficiary by preventing the named Trustee from acting, but it also prevents the beneficiary from effectively controlling the Trust by appointing a pliable lackey as Trustee. Instead, the Trust protector can independently choose a competent person to act as Trustee who is NOT beholden to the beneficiary for his or her job.
Just another example of how well laid plans can help avoid disaster.
Will your estate be subject to estate taxes at the time of your death? That may not be so clear. After all, Congress seems intent to keep changing the estate tax laws. In recent years, the estate tax has been set to apply only to estates that exceed $5 million in value, with an inflationary adjustment that makes the estate tax limit $5.45 million in 2016. But Democrats want to lower the estate tax limit and Republicans want to repeal it altogether. Who knows what the future holds.
That’s where Discretionary Trusts come in. If you have an estate that potentially could be above the estate tax limit when you die (and who knows what that limit will be), then you may benefit from a Disclaimer Trust.
A disclaimer is simply a declaration by the recipient of an inheritance that they don’t want the property. There are a number of rules that apply to disclaimer, but the two you should know is that (1) a disclaimer must be made in writing within nine months of the decedent’s death, and (2) you cannot control where the property goes after you disclaim it.
Legally speaking, you are not obligated to accept a gift. And if you disclaim that gift, you are saying you do not want it and will not take any control over it. By doing so, the gift will pass according to the Trust terms as if you died before the Trust settlor. That means you wash your hands of the gift and you have nothing more to do with it.
In tax planning, we use the disclaimer to our advantage by providing Trust terms that direct the disclaimed assets to a trust (aptly named the Disclaimer Trust), where the assets are held for the benefit of the surviving spouse. This allows the surviving spouse to disclaim assets for tax planning purposes, and then have the assets pass into a Disclaimer Trust to be held for the survivor’s benefit.
If you have ever heard of a Bypass Trust, then you already know what a Disclaimer Trust is. A Disclaimer Trust is just a voluntary Bypass Trust that the surviving spouse can elect to create after the first spouse’s death. Whereas Bypass Trusts are mandatory and must be created after the first spouse’s death.
In other words, a Disclaimer Trust is merely a safety valve that allows the survivor to disclaim whatever portion of the estate would be over the $5.45 million mark after the surviving spouse’s death. Once that determination is made, the assets can be disclaimed, and the Disclaimer Trust is created.
So even though Congress has no idea what it will do with the estate tax limit, you can rest assured that any future estate tax can be properly dealt with and planned for simply by including a Disclaimer Trust in your revocable living trust.
I have seen many lawyers argue themselves OUT of a win by talking too much in court. The first rule of oral argument in court is that if you do not need to say anything because the judge is agreeing with you, then SHUT UP. You do yourself no service by re-hashing a point the court already accepts, and you run the risk of changing the court’s mind against you.
In those cases where the court is not going your way, then you do need to speak up. And here is the best advice I can give anyone speaking with a judge in court: listen to the judge and answer his or her question. Sounds simple enough, but again it is rarely practiced.
So often people come to court prepared to argue what they think the issue is, or what they fear the weak point is. But the court often sees the issue a little differently. You have to understand your legal arguments and be prepared to speak, but arguing a point the judge is not asking about is a waste of time and effort. More importantly, you can frustrate the judge and lose the argument altogether.
The best oral arguments I have had in court come from entering into a conversation with the court. The judge raises an issue or question, I listen to what he or she is asking about, and I formulate my response to address that concern. You must always remember that you are engaging in a conversation with the court. Coming into court with a pre-packaged argument and then not varying from your script is a sure recipe for disaster.
And when the court agrees with you and starts peppering the opposing party with questions, shut up. At times, your best argument can be silence.
How do you write a winning brief? Say what you are going to say, say it, and then say what you said. That is an old rule in writing and it applies to well written legal briefs also. The biggest problem with most written legal arguments is the length. As Winston Churchill once said of a very lengthy report “This document by its very length defends itself against the risk of being read.”
Judges are busy people. The court staff who review most of the pleadings before the judge reads it are also busy people. They have to sort through thousands of pleadings on a daily basis and try to make sense of it all. Yet so many people (lawyers included) think that the judge has a full Sunday afternoon dedicated to siting down with a nice cup of tea and fully reading and enjoying your written pleading. No, no, no. At most a judge may have fifteen minutes to review your work and determine what points you are making.
That means written legal arguments must be presented in a very different manner than any other writing. First, you have to tell the judge what you want him or her to do. What action should the court take? Just say it upfront. For example “the Court should grant this motion because ….” The word “because” is very important because (see what I did there) it forces you to put a point on your thought. If I say “the court should grant this motion” and stop there then the judge does not know why that should be done. Tell the judge why as soon as possible. Do it in your first sentence.
Next, you have to tell the judge what legal authority you have to support the request. Judges like to follow the law (its kinda their thing), so give them the law. It should be short and to the point. Not so short that it makes no sense, but also not any longer than required to convey the point.
Finally, conclude and get out. Your job in any written legal argument is to say what you need to say as quickly and clearly as possible and then STOP. There is no reason to restate the points again, and again, and again. Some lawyers just cannot help themselves from writing too much. There is also a fear that the point may not be made. But in reality it is often the smallest light that cuts through the fog. Simple, concise language covering less than a page conveys a better and more powerful message than ten pages of legal prose.
When you are faced with a California Trust or Will lawsuit, you have to respond. But what does a response look like? How much do you have to say and what effect does your response have on your case?
Responses are funny things. Sometime a Judge may read the response prior to your next hearing and have some comments on the facts involved. Sometimes they will not do so. In theory, everything you state in a response is hearsay and cannot be used as evidence by the Court. In practice, that is usually the case, but not always.
At times, a response is never reviewed by the judge, and the case simply progresses to trial where only the evidence presented in the courtroom is considered. Other times, the response is read and affects any number of preliminary rulings by the court.
As a result, your response needs to be prepared to give enough details to help, when needed. But your response should not give too much detail either, in the event facts or evidence changes over time as discovery is conducted. Sometimes a favorable fact becomes hard to prove if witnesses or documents fail to support the presumed fact. For that reason, you do not necessarily want to state every presumed fact at the outset of your case. Just state what you know. If you do not know a fact, but believe it to be true, then you can say that.
Remember that responses must be verified under penalty of perjury—so don’t lie in your response. You want the facts contained in your response to be as truthful as possible. But every case has a few unknown or obscure facts that must be ascertained or clarified along the way.
In all, your response should be short and to the point. The term “short” being relative to the complexity of your case. Don’t worry about leaving something out because you will have plenty of opportunity to fill in the missing information at time of trial.
Law is a subjective pursuit. Only after everything is said and done can you look back and diagnose the good and the bad. But when you are in the heat of battle in a lawsuit, there rarely are any clearly right answers…or clearly wrong answers for that matter. Sometimes you just have to jump off a cliff and hope for the best.
Presenting your case in a court of law is highly subjective. Ultimately, only the viewpoint of the judge or jury matters, and their viewpoint may be very different from your own. Remember that you have lived with your case for years before it ever sees the light of day at trial. In some Trust and Will cases, the family issues have taken decades to develop to the point where litigation starts. There is no way a judge or jury will understand or see the issues from your perspective…not completely.
The goal then is to exercise good judgment to decide how to present your case at each stage of the litigation. By the time you get to trial, you should know a lot about the evidence you have, the witnesses you have, and (more importantly) the evidence you do NOT have. You should also know the facts, witnesses, and documents the opposing party has as well.
The mistake many parties make is to take ALL the facts, witnesses, and documents into trial to present to the judge or jury. That can be a BIG mistake. Trying to deluge a judge or jury with too much information is a great way to paralyze them from making any decision.
The better approach is to narrow down the information to the most important issues you want to address. You don’t want to carpet-bomb the court, you want to make a targeted strike that will get to the heart of the issues you care the most about.
For example, if you want to have a Trustee removed, focus on the facts that support removal, but do not focus on facts that have nothing to do with removal (such as the Trustee’s DUI from twenty years ago, or their ten-year-old bankruptcy filing). Facts from the distant past rarely persuade a judge to take action NOW. For Trustee removal, you need facts that show imminent danger will occur if removal is not granted.
Moreover, you really need to pick your top three strongest arguments and go only with those three points. And then drop two of them. It sounds silly to narrow you case to a single point, but the beauty of simplification is that it makes decisions simple. The problem with simplification is you must exercise good judgment to decide which arguments to focus on. Plus, it takes a lot of work to figure out which claims are the best versus the worst.
Judgment makes all the difference when it comes to simplification. And without simplification, your case is sunk because confusion causes paralysis in decision making.
You may be surprised to learn that there are a number of ways that a bad Trustee can escape liability in Court. For starters, if the Trustee disclosed a questionable transaction in writing to you, you only have three years in which to file a lawsuit. But that’s just the start.
Consent, release, and exculpation come next. If you consented to a transaction before it was taken, you may have waived your right to complain about that transaction in the future. The same applies with a release, if you signed a release of liability, then you may have waived any lawsuit against the Trustee for wrongdoing. Luckily, both consents and releases require that you be given full disclosure of all material facts and circumstances surrounding a transaction; otherwise the consent or release is invalid.
And then we come to exculpation. Exculpation is a terrible Trust provision that says a Trustee does not have to take responsibility for being negligent with Trust property. That means a Trustee can violate any of his or her duties as Trustee, and there is nothing you can do about it. There is one catch, every Trustee is still liable for gross negligence, recklessness, and intentional harm. But each of those claims are harder to prove than basic negligence. In order for exculpation to work, the Trust has to specifically provide for it in the Trust document. Most people who create Trusts that contain an exculpation clauses have no idea the clause is there or what it even means. Unfortunately, exculpation can cause more harm than good to the Trust assets.
Finally, there is good-old fashioned equity. If all else fails to let a Trustee off the hook, the Court is authorized, in its discretion, to excuse any Trustee wrongdoing. Probate Court’s are courts of equity, meaning they do not just apply to the law, they also are given wide discretion to determine what is fair and reasonable in a given situation. If a Trustee has breached a legal duty to the Trust and caused damage, the Court still has the power to excuse the Trustee’s breach if the Court believes it fair to do so. This can be a huge loophole that allows Trustees to escape legal liability for their mistakes.
The bottom line: it is not so easy to hold a Trustee accountable. There are many ways in which a Trustee can escape liability even where harm is caused to the Trust assets. That means it is up to you to build your case, and tell your story to the Court, so equity falls in your favor instead.